Thursday, April 1, 2010
Health Care as a Command Product
Henry Ford was reported to have said of his Model T car, "Any customer can have a car painted any color that he wants, so long as it's black." This was an economic limitation of assembly line production for reasons of efficiency (and by extension economy): Black was the fastest drying paint color.
Limiting available options of a product is inherently cost-efficient (cheaper & more affordable) since set-up, breakdown and modification, to use fabrication terms, are minimized. It also facilitates maintenance & administration, reducing paperwork and information flow to produce cost savings.
Ford approached the Model T as pretty much of a one-size-fits-all offering, since the assembly line and mass-production brought in the Model T at the most affordable option for the greatest number of people. Ford's early profits were realized through a broad-reaching market strategy, not a specialized one. A black, assembly-line produced car was the most affordable car.
In a free-market economy, as prosperity increases, market demand gives rise to innovative and personalized products as people can afford to obtain desired goods and services beyond mere cost criteria. A product's Increased value can demand an increased price if such value is also affordable to buyers who desire that value. This demand defines specialized markets. Responding to such demand has been somewhat characteristic of private insurance coverage - lots of options in a range of prices.
A commanded, public insurance option must necessarily be the Model T of insurance policies: The most efficient price point with limited options. Why such type of coverage cannot already be provided by private insurance companies is perplexing, unless external regulations make it impossible.
Commanded health insurance products are readily available as examples. Canada has one. So does Cuba. Canada reportedly has long treatment waiting times due to suppressing market supply through regulation and price controls. Castro's approach to caring for poor people has been to make more of them - leveling the playing field, so to speak - and spreading the wealth around until there wasn't any of it left. These are generalizations to be sure, but Canada artificially suppresses the supply of services while Cuba artificially inflates demand.
When governments try to artificially influence the supply of a scarce resource or its demand, over time the outcomes might be expected to vary from unsatisfying to disastrous. In economics, scarcity, like water, naturally seeks it's own level of equilibrium.